Importance and economic impact of real estate on the Canadian economy!

Economists at two of Canada’s major banks published analysis last week about the importance and the economic impact of our real estate development industries, markets, services and their collective ancillary multiplier effect on the Canadian economy.

BMO Economics report is called “The Canadian Housing Boom’s Economic Impact”.  It suggests that, with the exception of a few major urban markets like Calgary and Toronto, the boom period actually ended in 2008. During the “boom” period between 2002 and 2007, Canadian home prices rose at a rate 5% faster than incomes did and, since then, both have risen at roughly the same rate. BMO’s economic models calculate that this boom period, which also spurred a boom in new home construction, added 0.56 percentage points to the rate of growth in the overall economy – equal to one fifth of total economic growth. The model shows that a 10% price correction would reduce economic growth by one percentage point – or about half of the current growth level of 2%. A steeper correction of 20% could push the Canadian economy into recession.

Scotiabank also published analysis last week which states that “Canada’s long housing cycle is turning”.  It looks at what it called “residential investment” which includes construction, renovations and transfer costs which totalled $128 billion in 2013. Scotia expects that all components of residential investment will ease over the next two years and the effects will be felt broadly throughout the economy. Home price gains are also likely to slow and lower levels of gains in net worth “will reinforce a more cautious trend in consumer spending”. 

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